0001005477-01-501412.txt : 20011019 0001005477-01-501412.hdr.sgml : 20011019 ACCESSION NUMBER: 0001005477-01-501412 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010902 FILED AS OF DATE: 20011017 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRISTEDES FOODS INC CENTRAL INDEX KEY: 0000028325 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 131829183 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07013 FILM NUMBER: 1761014 BUSINESS ADDRESS: STREET 1: 823 ELEVENTH AVE CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2129565803 MAIL ADDRESS: STREET 1: 823 ELEVENTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: DESIGNCRAFT INDUSTRIES INC/DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: GRISTEDES SLOANS INC /DE DATE OF NAME CHANGE: 19971209 FORMER COMPANY: FORMER CONFORMED NAME: SLOANS SUPERMARKETS INC DATE OF NAME CHANGE: 19931015 10-Q 1 d01-34855.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 2, 2001 |_| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission File Number 1-7013 GRISTEDE'S FOODS, INC. ---------------------- (Exact Name of Registrant as Specified in its Charter) Delaware 13-1829183 -------- ---------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 823 Eleventh Avenue, New York, New York 10019 --------------------------------------------- (Address of Principal Executive Offices) (212) 956-5803 -------------- (Registrant's Telephone Number, Including Area Code) N/A --- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15 (d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| At October 16, 2001, registrant had issued and outstanding 19,636,574 shares of common stock. GRISTEDE'S FOODS, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of September 2, 2001 and December 3, 2000 Page 3 Consolidated Statements of Operations for the quarters and nine months ended September 2, 2001 and August 27, 2000 Page 4 Consolidated Statements of Stockholders' Equity for the year ended December 3, 2000 and the nine months ended September 2, 2001 Page 5 Consolidated Statements of Cash Flows for the quarters and nine months ended September 2, 2001 and August 27, 2000 Page 6 Notes to Consolidated Financial Statements Page 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Page 11 PART II - OTHER INFORMATION Page 15 2 Item 1 Financial Statements GRISTEDE'S FOODS, INC. UNAUDITED CONSOLIDATED BALANCE SHEETS
September 2, December 3, ASSETS 2001 2000 ------------ ------------ CURRENT ASSETS: Cash $ 354,229 $ 412,408 Accounts receivable - net of allowance for doubtful accounts of $204,162 at September 2, 2001 and $150,000 at December 3, 2000 6,316,483 6,864,329 Inventory 32,085,048 30,104,955 Due from related parties - trade 0 879,000 Due from related parties - other 0 3,072,000 Prepaid expenses and other current assets 1,713,547 2,488,337 ------------ ------------ Total current assets 40,469,307 43,821,029 ------------ ------------ PROPERTY EQUIPMENT: Furniture, fixtures and equipment 17,328,067 16,838,262 Capitalized equipment leases 20,868,004 18,714,519 Leaseholds and leasehold improvements 51,353,857 47,963,768 ------------ ------------ 89,549,928 83,516,549 Less accumulated depreciation and amortization 39,400,644 35,228,221 ------------ ------------ Net property and equipment 50,149,284 48,288,328 Deposits and other assets 1,071,903 951,596 Other assets 3,453,500 3,385,104 ------------ ------------ TOTAL $ 95,143,994 $ 96,446,057 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable, trade $ 26,108,179 $ 26,956,398 Accrued payroll, vacation and withholdings 1,674,729 2,397,593 Accrued expenses and other current liabilities 524,851 1,343,421 Capitalized lease obligation - current portion 2,891,538 2,362,457 Current portion of long term debt 2,000,000 6,388,426 Due to affiliates - current portion 1,457,604 0 ------------ ------------ Total current liabilities 34,656,901 39,448,295 Long-term debt - noncurrent portion 23,963,697 22,027,652 Due to affiliates 12,803,046 12,129,031 Capitalized lease obligation - noncurrent portion 8,336,934 8,221,842 Rent leveling liability 3,747,272 3,301,793 ------------ ------------ Total liabilities 83,507,850 85,128,613 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, $50 Par, -share authorized 500,000; none issued 0 0 Common stock, $0.02 par value - shares authorized 25,000,000; outstanding 19,636,574 shares at September 2, 2001 and December 3, 2000 392,732 392,732 Additional paid-in capital 14,136,674 14,136,674 Retained earnings/ (deficit) (2,893,262) (3,211,962) ------------ ------------ Total stockholders' equity 11,636,144 11,317,444 ------------ ------------ TOTAL $ 95,143,994 $ 96,446,057 ============ ============
See accompanying notes. 3 GRISTEDE'S FOODS, INC. UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE 39 WEEKS AND 13 WEEKS ENDED SEPTEMBER 2, 2001 AND AUGUST 27, 2000
39 weeks 13 weeks 39 weeks 13 weeks ended ended ended ended September 2, September 2, August 27, August 27, 2001 2001 2000 2000 ------------- ------------ ------------- ------------ Sales $ 170,403,587 $ 53,569,511 $ 157,351,974 $ 51,334,157 Cost of sales 103,035,801 32,030,281 95,423,649 31,542,007 ------------- ------------ ------------- ------------ Gross profit 67,367,786 21,539,230 61,928,325 19,792,150 Store operating, general and administrative expenses 53,014,750 17,270,249 49,061,828 16,545,457 Pre-store opening startup costs 165,000 33,000 452,981 30,758 Depreciation and amortization 5,085,861 1,762,393 4,176,651 1,500,895 Non-store operating expenses: Administrative payroll and fringes 3,916,850 1,407,421 3,263,384 1,077,434 General office expense 1,789,646 606,691 1,322,205 551,435 Professional fees 474,044 119,817 373,275 89,141 Corporate expense 110,303 21,270 148,815 61,301 ------------- ------------ ------------- ------------ Total non-store operating expenses 6,290,843 2,155,199 5,107,679 1,779,311 ------------- ------------ ------------- ------------ Operating income (loss) 2,811,332 318,389 3,129,186 (64,271) ------------- ------------ ------------- ------------ Other income (expense): Interest expense (2,656,687) (786,894) (2,669,186) (865,884) Interest income 8,566 1,261 25,868 593 Other income (expense) 177,329 (3,811) 0 0 ------------- ------------ ------------- ------------ Total other expense - net (2,470,792) (789,444) (2,643,318) (865,291) ------------- ------------ ------------- ------------ Income (loss) before income taxes 340,540 (471,055) 485,868 (929,562) Provision for income taxes 21,840 1,840 26,050 13,000 ------------- ------------ ------------- ------------ Net income (loss) $ 318,700 $ (472,895) $ 459,818 $ (942,562) ============= ============ ============= ============ Income (loss) per share, basic and diluted $ 0.02 ($0.02) $ 0.02 ($0.05) ============= ============ ============= ============ Weighted average number of shares and equivalents outstanding 19,636,574 19,636,574 19,636,574 19,636,574 ============= ============ ============= ============
See accompanying notes 4 GRISTEDE'S FOODS, INC. UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 3, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 2, 2001
Additional Retained Total Common stock Paid-In earnings Stockholders' Shares Amount Capital (Deficit) Equity ---------- --------- ---------- ----------- ----------- Balance at November 28, 1999 19,636,574 $ 392,732 14,136,674 $(3,021,054) $11,508,352 Net loss for the year ended December 3, 2000 (190,908) (190,908) ---------- --------- ---------- ----------- ----------- Balance at December 3, 2000 19,636,574 $ 392,732 14,136,674 $(3,211,962) $11,317,444 Net income for the nine months ended September 2, 2001 318,700 318,700 ---------- --------- ---------- ----------- ----------- Balance at September 2, 2001 19,636,574 $ 392,732 14,136,674 $(2,893,262) $11,636,144 ========== ========= ========== =========== ===========
See accompanying notes. 5 GRISTEDE'S FOODS, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 2, 2001 AND AUGUST 27, 2000
39 weeks 39 weeks ended ended September 2, August 27, 2001 2000 ------------ ----------- Cash flows from operating activities: Net income $ 318,700 $ 459,818 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,085,861 4,176,651 Change in allowance for bad debts 54,162 0 Gain on sale of store (192,177) 0 Changes in operating assets and liabilities: Accounts receivable 493,684 (841,947) Inventory (1,980,093) (3,040,205) Notes receivable 0 562,826 Due from related parties - trade 879,000 0 Prepaid expenses and other current assets 774,790 (876,069) Other assets (827,300) (300,376) Accounts payable, trade (848,219) 1,940,659 Accrued payroll, vacation and withholdings (722,864) (439,615) Accrued expenses and other current liabilities (818,285) 83,553 Accrued rent leveling 445,479 478,811 Other credits 0 (566,500) ----------- ----------- Net cash provided by operating activities 2,662,738 1,637,606 ----------- ----------- Cash flows from investing activities: Proceeds from sale of store 225,000 0 Capital expenditures (3,746,230) (6,100,617) ----------- ----------- Net cash used in investing activities (3,521,230) (6,100,617) ----------- ----------- Cash flows from financing activities: Repayments of bank loan (2,452,381) (900,000) Proceeds from bank loans 0 800,000 Repayments of capitalized lease obligations (1,950,925) (1,446,031) Advances from affiliates 5,203,619 5,909,941 ----------- ----------- Net cash provided by financing activities 800,313 4,363,910 ----------- ----------- NET DECREASE IN CASH (58,179) (99,101) CASH, begining of period 412,408 298,582 ----------- ----------- CASH, end of period $ 354,229 $ 199,481 =========== =========== Supplemental disclosures of cash flow information: Cash paid for interest $ 2,871,482 $ 2,280,972 Cash paid for taxes $ 107,142 $ 93,850 Supplemental schedule of non cash financing activity: Assets acquired under capitalized lease obligations $ 2,595,099 $ 3,033,704
See accompanying notes. 6 GRISTEDE'S FOODS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - On November 4, 1997, Sloan's Supermarkets, Inc. ("Sloan's") changed its name to Gristede's Sloan's, Inc. ("GRI" or the "Company"). On November 10, 1997, GRI acquired certain assets, net of liabilities, of 29 selected supermarkets and a wholesale distribution business ("The Food Group") controlled by Mr. John Catsimatidis, Chairman and 37% stockholder of Sloan's. The transaction was accounted for as the acquisition of Sloan's by The Food Group pursuant to Emerging Issues Task Force 90-13 as a result of The Food Group obtaining control of Sloan's after the transaction. The assets and liabilities of The Food Group were recorded at their historical cost. Sloan's assets and liabilities were recorded at their fair value to the extent acquired. Consideration for the transaction was based on an aggregate of $36,000,000 in market value of the Company's common stock and the assumption of $4,000,000 of liabilities. 16,504,298 shares of common stock were issued on the date of the acquisition based on a market price of $2.18 per share. On August 16, 1999 the Company changed its name to Gristede's Foods, Inc. The Company operates 42 supermarkets (the "Supermarkets") and two pharmacy stores. 37 Supermarkets and two pharmacy stores are located in Manhattan, New York, three Supermarkets are located in Westchester County, New York, one Supermarket is located in Brooklyn, New York and one Supermarket is located in Long Island, New York. Three of the Supermarkets are operated under the "Sloan's" name and 39 are operated under the "Gristede's" name. The Company leases all of its store locations. The Company also owns City Produce Operating Corp., a corporation which operates a warehouse and distribution center primarily for fresh produce on leased premises in the Bronx, New York. Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Quarter End - The Company operates using the conventional retail 52/53 week fiscal year. The fiscal quarter ends on the Sunday closest to the end of the quarter. The Company's fiscal year ends on the Sunday closest to November 30. Inventory - Store inventories are valued principally at the lower of cost or market with cost determined under the retail first in, first out (FIFO) method. Property and Equipment and Depreciation - Property and equipment is stated at cost. Depreciation of furniture, fixtures and equipment is computed by the straight-line method over the estimated useful lives of the assets. Leases and Amortization - The Company charges the cost of noncancelable operating lease payments and beneficial leaseholds to operations on a straight-line basis over the lives of the leases. 7 Provision for income taxes - Income taxes reflect Federal and State alternative minimum tax only, as all regular income taxes have been offset by utilization of the Company's net operating loss carry forward. Income (Loss) per share - Per share data are based on the weighted average number of shares of common stock and equivalents outstanding during each quarter. Income per share is computed by the treasury stock method; basic and diluted income per share are the same. In the opinion of management, the information furnished reflects all adjustments (consisting of normal recurring adjustments), which are necessary for a fair statement of the results of operations for the interim period. The interim figures are not necessarily indicative of the results to be expected for the fiscal year. The Company's Annual Report on Form 10-K for the 12 month period ended December 3, 2000 contains information which should be read in conjunction herewith. 2. RELATED PARTY TRANSACTIONS Under a management agreement dated November 10, 1997, Namdor Inc., a subsidiary of the Company, performs consulting and managerial services for one supermarket owned by a corporation controlled by John Catsimatidis. In consideration of such services, Namdor Inc. is entitled to receive on a quarterly basis a management fee of 1.25% of all sales of merchandise made at the managed supermarket. During the nine months and the quarter ended September 2, 2001, respectively, the management fee income was $37,122 and $13,417. For the nine months and the quarter ended August 27, 2000, respectively, the management fee income was $55,336 and $12,069. During the first two quarters of the 2000 period there were two additional stores included in this agreement, one of which has since closed and another which has been contributed to the Company and is now included in the Company's operations. C&S Acquisition Corp. (formerly Red Apple Leasing, Inc.) a corporation wholly owned by John Catsimatidis, leases equipment to the Company. Such leases are primarily for store operating equipment. There were no obligations under capital leases remaining at September 2, 2001, which previously required monthly payments of $35,114 through March 1, 2001. Obligations under operating leases were $41,676 per month during the nine months ended September 2, 2001. Advertising services had been provided to the Company by an affiliated company, MCV Advertising Associates Inc., a company owned by John Catsimatidis. For the nine months and the quarter ended September 2, 2001, respectively, the cost was $20,448 and $0, respectively. For the nine months and the quarter ended August 27, 2000, respectively, the costs incurred were $1,053,899 and $289,932. During the quarter ended March 4, 2001, the Company began dealing directly with various media and no longer utilizes MCV Advertising Associates Inc. The Company leases a 25,000 square foot warehouse, its office facilities, four supermarket locations and a pharmacy contained within a supermarket from Red Apple Real Estate, Inc., a company solely owned by John Catsimatidis. For the nine months and the quarter ended September 2, 2001, the 8 Company paid to Red Apple Real Estate, Inc. $1,151,072 and $376,950 for rent under such leases. For the nine months and the quarter ended August 27, 2000, respectively, the rent was $827,075 and $247,217 for three locations. The lease terms provide for an aggregate of $1,562,000 per year in lease payments. The leases are "triple net" whereby the tenant pays all real estate taxes, insurance and maintenance. Wolf, Block, Schorr and Solis-Cohen LLP, a law firm of which Martin Bring, a director of the Company, is a partner, charged fees of approximately $29,800 and $2,400, respectively, for rendering legal services to the Company during the nine months and the quarter ended September 2, 2001. For the nine months and the quarter ended August 27, 2000, respectively, the fees were $205,663 and $60,244. Amounts due to affiliates are primarily to United Acquisition Corp., a corporation wholly owned by John Catsimatidis, and represent liabilities in connection with the consummation of the merger, as discussed in Item 13 to the Form 10-K for the year ended December 3, 2000, and additional advances made by the affiliates since the merger. The affiliates have agreed not to demand payment of these liabilities in the next fiscal year. Accordingly, the liability has been classified as noncurrent. As part of post-closing adjustments in connection with the Food Group Acquisition, approximately $4,028,000 in due from affiliates has been offset against the amounts due to affiliates. The net amount due to affiliates at September 2, 2001 and December 3, 2000 was $14,260,650 (including current portion) and $12,129,031, respectively; of these amounts $9,000,000 was subordinated to the Company's banks; the Company has agreed to increase the amount subordinated to the banks at September 2, 2001 to $12,800,000. The liability does not bear interest. Due from related parties - trade, represents amounts due from affiliated companies for merchandise shipped from the Company's subsidiary City Produce Operating Corp. in the ordinary course of business and for which payments are made to such subsidiary on a continuous basis, as well as management fees receivable for administrative and managerial services performed for the affiliated companies by the Company. For the nine months and the quarter ended September 2, 2001, merchandise sales to affiliates were approximately $1,507,000 and $426,000, respectively. This affiliate purchased its merchandise from a third party prior to 2000. On February 6, 1998, the Company agreed to purchase substantially all of the assets and assumed certain of the liabilities of a supermarket located at 1644 York Avenue, New York City, that was owned by a corporation controlled by John Catsimatidis. On March 1, 2000 the Company and the affiliate determined to restructure the transaction by rescinding the purchase effective as as of February 6, 1998, and entering into an operating agreement which gives the Company full control of the supermarket and the right to operate the supermarket for the account of the Company. The operating agreement terminates on December 2, 2001, but the term shall be extended for additional one year periods unless either party shall give notice of termination not later than 90 days prior to the end of the then current term of the agreement. Under the operating agreement, the Company shall pay to the affiliate $1 per annum, plus such other consideration as may be approved by the Company's directors (excluding John Catsimatidis). Pursuant to the operating agreement the Company or any designee of the Company, also has the option until December 31, 2005 to purchase the supermarket for $2,778,000, which price is the fair market price of the supermarket established on October 11, 1999 by the Company's directors (excluding John Catsimatidis). In May 2000, another affiliate and the Company entered into a similar operating agreement for a store owned by the affiliate. As consideration, the affiliate receives $1 per annum, plus such other consideration as may be approved by the Company's directors (excluding John Catsimatidis). The operating agreement terminates on May 10, 2002, but the term shall be extended for additional one 9 year periods unless either party shall give notice of termination not later than 90 days prior to the end of the then current term of the agreement. Pursuant to the operating agreement, the Company, or any designee of the Company, also has the option until December 31, 2005 to purchase the supermarket for the fair market price of the supermarket as established by the Company's directors (excluding John Catsimatidis) using a valuation criterion similar to that issued for valuing the store at 1644 York Avenue, New York City. It is management's opinion that the fair market value of this store is approximately $3 million. The affiliates' intention in entering into these two operating agreements where the Company enjoys full benefits of ownership for the nominal consideration of $1 per annum per store was to effect post closing adjustments in connection with the Food Group acquisition. If the option to purchase the supermarkets is exercised, the excess of the purchase price over the net book value of the assets will be shown as a charge to equity. During fiscal 1999 Mr. John Catsimatidis issued a limited $600,000 guarantee of the collection of all accounts receivable acquired pursuant to the Food Group acquisition and agreed not to permit the level of the Company's liability due to the affiliate to fall below $600,000, prior to the issuance of the fiscal year ended December 3, 2000 audited financial statements. In fiscal 2000 such limited guarantee and commitment regarding the level of the Company's liability to the affiliate was extended until prior to the issuance of the fiscal year ending December 2, 2001 audited financial statements, in the amount of $700,000. 3. LITIGATION Reference is made to Item 3 (2) contained in the Company's Annual Report on Form 10-K for the year ended December 3, 2000 to the matter captioned: Ansoumana v. various defendants. On April 2, 2001, The Court certified a Rule 23(b)(3) class, with no sub-classes. This certification is on appeal before the Second Circuit Court of Appeals. To date, approximately 60 employees of The Great American Delivery Service Company have opted into the class action. Management expects the matter will be resolved in the near future. The Company will vigorously defend the fact that these workers are employees of Great American, and not employees of the Company. 4. IMPACT OF THE TERRORIST ATTACKS OF SEPTEMBER 11, 2001 The Company has two stores in the World Trade Center area of Manhattan, which were forced to close as a result of the terrorist attacks of September 11, 2001. One store reopened for business on October 1, 2001, the other is being rehabilitated. The Company has suffered property damage losses, including inventory, fixtures and facilities and loss of revenue. While it is too early to determine all damages and losses, management believes the above losses are substantially covered by its insurance, including business interruption. 5. AMENDED BANK FACILITY The current portion of long term debt on the unaudited consolidated balance sheet at September 2, 2001 reflects the new amortization requirement of the approved bank facility, to be effective as of September 1, 2001, for which the Company has received commitments from a group of its existing banks and is due to close within 30 days. 10 GRISTEDE'S FOODS, INC. AND SUBSIDIARIES PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE NINE MONTHS AND THE QUARTERS ENDED SEPTEMBER 2, 2001 AND AUGUST 27, 2000 RESULTS OF OPERATIONS The following table sets forth items from the Company's Consolidated Statements of Operations as a percentage on sales.
39 weeks 13 weeks 39 weeks 13 weeks ended ended ended ended 9/2/01 9/2/01 8/27/00 8/27/00 ------ ------ ------- ------- Sales 100.0 100.0 100.0 100.0 Cost of sales 60.5 59.8 60.6 61.4 -------- -------- -------- -------- Gross profit 39.5 40.2 39.4 38.6 Store operating, general and administrative expenses 31.1 32.2 31.2 32.2 Pre-store opening startup costs 0.1 0.1 0.3 0.1 Depreciation and amortization 3.0 3.3 2.7 2.9 Non-store operating expense 3.7 4.0 3.2 3.5 -------- -------- -------- -------- Operating income 1.6 0.6 2.0 -0.1 Other income (expense) -1.4 -1.5 -1.7 -1.7 -------- -------- -------- -------- Income (loss) from operations before income taxes 0.2 -0.9 0.3 -1.8 Provisions for income taxes 0.0 0.0 0.0 0.0 -------- -------- -------- -------- Net income (loss) 0.2 -0.9 0.3 -1.8 -------- -------- -------- --------
Sales for the nine months and for the quarter ended September 2, 2001 were $170,403,587 and $53,569,511, respectively, as compared to sales for the nine months and for the quarter ended August 27, 2000 of $157,351,974 and $51,334,157, respectively. The increase in sales during the 2001 periods was primarily the result of the Company's remodeling program, which is continuing and two new stores which opened during the second and third quarters of the 2000 period. Gross profit for the nine months and for the quarter ended September 2, 2001 were $67,367,786 and $21,539,230, respectively, or 39.5% and 40.2% of sales, respectively, as compared with $61,928,325 and $19,792,150, respectively, or 11 39.4% and 38.6% of sales for the nine months and for the quarter ended August 27, 2000. The increase in gross profit as a percentage of sales, during the 2001 three-month period, was primarily due to the reduced number of new store openings compared to the prior year period, which reflected promotional pricing. Store operating, general and administrative expenses for the nine months and for the quarter ended September 2, 2001 were $53,014,750 and $17,270,249, respectively, or 31.1% and 32.2% of sales, respectively, as compared with $49,061,828 and $16,545,457, respectively, or 31.2% and 32.2% of sales for the nine months and for the quarter ended August 27, 2000. Pre-store opening startup costs for the nine months and for the quarter ended September 2, 2001 were $165,000 and $33,000, respectively, or 0.1% and 0.1% of sales, as compared with $452,981 and $30,758 or 0.3% and 0.1% of sales for the nine months and for the quarter ended August 27, 2000. The decrease in pre-store opening startup costs in the 2001 nine month period was due to the fact that fewer stores were remodeled or new stores opened as compared to the same period in 2000. The stores remodeled required less pre-opening advertising and store set-up labor costs. Non-store operating expenses for the nine months and for the quarter ended September 2, 2001 were $6,290,843 and $2,155,199 respectively, or 3.7% and 4.0% of sales, as compared with $5,107,679 and $1,779,311 or 3.2% and 3.5% of sales for the nine months and for the quarter ended August 27, 2000. Administrative payroll and fringes were 2.3% and 2.6% of sales for the nine months and for the quarter ended September 2, 2001 as compared with 2.1% of sales for the nine months and for the quarter ended August 27, 2000. General office expenses were 1.1% and 1.1% of sales for the nine months and for the quarter ended September 2, 2001 as compared with 0.8% and 0.8% of sales for the nine months and for the quarter ended August 27, 2000. The increase during the 2001 period was primarily due to additional back office costs in relation to the increased sales. Professional fees were 0.3% and 0.2% of sales for the nine months and for the quarter ended September 2, 2001 as compared with 0.2% of sales for the nine months and for the quarter ended August 27, 2000. Corporate expenses were 0.1% of sales for the nine months and for the quarter ended September 2, 2001 and for the nine months and for the quarter ended August 27, 2000. Interest expense was $2,656,687 and $786,894 or 1.6% and 1.5% of sales for the nine months and for the quarter ended September 2, 2001 as compared with $2,669,186 and $865,884 or 1.7% of sales for the nine months and for the quarter ended August 27, 2000. The decrease in the 2001 nine month period was primarily attributable to lower interest rates, partially offset by increased borrowings under capital leases for equipment financing. Other income (expense) was $177,329 and ($3,811) or 0.1% and 0.0% of sales for the nine months and for the quarter ended September 2, 2001 as compared with $0 for the nine months and for the quarter ended August 27, 2000. This was attributable to the closure of a store and the sale of its lease in the 2001 period. As a result of the items reviewed above the net income (loss) before provision for income taxes for the nine months and for the quarter ended September 2, 2001 was $318,700 and $(472,895), as compared to $459,818 and $(942,562) for the nine months and for the quarter ended August 27, 2000. 12 LIQUIDITY AND CAPITAL RESOURCES Liquidity: The consolidated financial statements of the Company indicate that at September 2, 2001 current assets exceed current liabilities by $5,812,406 and stockholders' equity was $11,636,144. Management believes that cash flows generated from operations, supplemented by bank financing, financing from third party leasing companies and/or additional financing from the Company's majority shareholder, will be sufficient to pay the Company's obligations, provide for its capital expenditure program and meet its other cash requirements. The current portion of long term debt on the unaudited consolidated balance sheet at September 2, 2001 reflects the new amortization requirement of the approved bank facility, to be effective as of September 1, 2001, for which the Company has received commitments from a group of its existing banks and is due to close within 30 days. Debt and Debt Service: On November 10, 1997, the Company completed its financial arrangements with a group of banks for a credit facility in the aggregate amount of $25,000,000. Under the credit agreement the Company obtained a term loan in the amount of $12,000,000 to refinance prior bank debt, an improvement term loan line of credit in the amount of $8,000,000 to finance capital improvements to its Supermarkets and a revolving line of credit in the amount of $5,000,000 to provide working capital. During fiscal 1999, the credit facility was amended and the revolving line of credit increased to $14,000,000. Recently, a group of the Company's existing banks agreed to amend and increase the Company's credit facility to an aggregate total of $32,500,000, as follows: (i) the new revolving line of credit will be $17,000,000 with a maturity of November, 2004; (ii) the new term loan will be $15,500,000, with a maturity of December, 2006. The banks also agreed to change certain financial covenants in the credit agreement. Borrowings under the facility bear interest at a spread over either the prime rate of the bank acting as agent for the group of banks or a LIBOR rate, with the spread dependent on the ratio of the Company's funded debt to EBITDA ratio, as defined in the credit agreement. The average interest rate on amounts outstanding under the facility during the nine months and the quarter ended September 2, 2001 was 8.49% and 7.16% per annum, respectively. The credit facility contains covenants, representations and events of default typical of credit facility agreements, including a requirement restricting outstandings under the revolving line of credit to be less than a borrowing base, as defined in the credit agreement, and financial covenants which require the Company to meet, among other things, a minimum tangible net worth, debt service coverage ratios and fixed charge coverage ratios, and which limit transactions with affiliates. The facility is secured by equipment, inventories and accounts receivable. The Company's majority shareholder, through affiliates, has contributed in excess of $15,500,000 (including current portion) through September 2, 2001, in the form of assumed liabilities, unsecured non-interest bearing demand loans and trade payables, with $9,000,000 subordinated to its banks; the Company has agreed to increase the amount subordinated to the banks at September 2, 2001 to $12,800,000. Pursuant to a financing agreement with a bank, an affiliate provides the Company with lease financing, primarily for store operating equipment. The bank has agreed to increase the financing arrangement by $2,750,000, which will permit the affiliate to provide such amount of additional lease financing to the Company. The current portion of long term debt on the unaudited consolidated balance sheet at September 2, 2001 reflects the new approved bank facility for which the Company has received commitments from its banks. 13 Capital Expenditures: The Company has not incurred any material commitments for capital expenditures, although it anticipates spending approximately $8 million to $9 million on its store remodeling and expansion program in fiscal 2001. Such amount is subject to adjustment based on the availability of funds. Cash Flows: Cash provided by operating activities amounted to $1.4 million in fiscal 2001 compared to $1.6 million in the prior year. The change in cash flow from operating activities was primarily due to cash provided by operating assets and liabilities and a smaller net income. Cash used for investing activities was $3.5 million in 2001 compared to $6.1 million in 2000, resulting from reduced capital expenditures. Cash provided by financing acitivities was $2.1 million in 2001 compared with $4.4 million in 2000 reflecting the bank financing drawn upon in 2000, the additional proceeds provided by an affiliate, offset by repayments of bank loans and capital leases. Recent Accounting Pronouncements: In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 represents a comprehensive framework of accounting rules that standardizes the accounting for all derivatives. SFAS No. 133 applies to all entities and to all types of derivatives, and is effective as amended in fiscal year 2001. The adoption of SFAS 133 is not expected to materially affect the financial statements of the Company. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, "Accounting and Reporting for acquired goodwill and other intangible assets ("SFAS No. 142"). SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives not be amortized, but rather tested, at least annually, for impairment. In addition, intangible assets that have finite useful lives will continue to be amortized over their useful lives. SFAS No. 142 is required to be applied starting with fiscal years beginning after December 15, 2001, and the adoption of which is not expected to materially affect the financial statements of the Company. 14 GRISTEDE'S FOODS INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Change in Securities And Use of Proceeds None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None. (b) No Current Reports on Form 8-K were filed for the quarter for which this report is being filed. 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Gristede's Foods, Inc. By: /s/ John A. Catsimatidis ---------------------------------- John A. Catsimatidis Chairman of the Board and Chief Executive Officer Dated: October 17, 2001 By: /s/ Gary Pokrassa ---------------------------------- Gary Pokrassa Chief Financial Officer Dated: October 17, 2001 16